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California in Recession? (Part III)

Summary:
Back in mid-December, Political Calculations asked if California was in recession. Data released by the Philadelphia Fed suggests the answer is no. Figure 1: Coincident index for California (blue), and implied index value for June 2018 using leading index (light blue arrow, blue dot) against log scale. NBER defined national recession dates shaded gray. Red arrow at date of Political Calculations post. Source: Philadelphia Fed [1], [2], and author’s calculations. We have more data now than as of 12/14/2017, so it’s useful to retrospectively look back at what the indices showed as of that date. This is shown in Figure 2. Figure 2: Coincident index for California (blue), and implied index value for April 2018 using leading index (light blue arrow, blue dot) against log scale. NBER defined

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Menzie Chinn writes California in Recession? (Part II)

Back in mid-December, Political Calculations asked if California was in recession. Data released by the Philadelphia Fed suggests the answer is no.

California in Recession? (Part III)
Figure 1: Coincident index for California (blue), and implied index value for June 2018 using leading index (light blue arrow, blue dot) against log scale. NBER defined national recession dates shaded gray. Red arrow at date of Political Calculations post. Source: Philadelphia Fed [1], [2], and author’s calculations.

We have more data now than as of 12/14/2017, so it’s useful to retrospectively look back at what the indices showed as of that date. This is shown in Figure 2.

California in Recession? (Part III)
Figure 2: Coincident index for California (blue), and implied index value for April 2018 using leading index (light blue arrow, blue dot) against log scale. NBER defined national recession dates shaded gray. Red arrow at date of Political Calculations post. Source: Philadelphia Fed [1], [2], and author’s calculations.

So, as of December, some conventional near-nowcasting variables and leading indicators suggested growth after a small bump.

Political Calculations stresses labor force participation rates as important predictive factors (including the teenage participation rate) for growth. Below, in Figure 3 I plot the labor force participation rate and civilian employment.

California in Recession? (Part III)
Figure 3: Labor force participation rate for California, % (blue, left scale), and civilian employment over age 16 (green, right log scale). Source: CA EDD and BLS via FRED.

For me, I don’t see an incipient slowdown (or recession) in these data. However, I’m not familiar with the use of the LFPR as a reliable leading, or concurrent, indicator of recession, at either the state or national level, so I may be missing something.

For more on California economic statistics, see here and here.

As an aside, the state-level household survey is subject to considerable revisions, even in a state as large as California. In order to show the pitfalls of making inferences about the business cycle by over-relying on state-level household survey based information, I plot various vintages of California unemployment rates in Figure 4.

California in Recession? (Part III)
Figure 4: California unemployment rates, %, December 2015 release (blue), December 2017 release (red), and December 2018 release (green). Source: St. Louis Fed FRED and ALFRED.

Notice how the apparent cyclical behavior in the December 2016 release is erased by the subsequently benchmark revised series in the December 2017 release?

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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